Why operate three verticals? Why have so many funding vehicles to lend into the same industry? And the answer is a couple of points. One, we have multiple funds and multiple funding sources that allow us to provide different types of solutions to different types of borrowers. We aim to be able to provide real estate-backed loans, cash flow lending, first-lien loans, longer-term, shorter-term, and a broad diversity of potential structures. Secondly, from a portfolio construction perspective, managing separate vehicles allows us to speak for and execute larger fundings to larger companies and a broader array of companies while still maintaining diversified portfolios for our investors. And then third, managing three different types of vehicles allows us to source different types of capital from different types of investors, as well as banks and debt financing sources that might not be available if you're just managing one vehicle.
And ultimately, I think what this allows us to do is to be the best partner with the most availability of options for the largest range of potential companies across our industry. And I'm sure we'll get into this, but I think sourcing pipeline is the lifeline of what we do. And this allows us to build relationships with the broadest range of possible operators.
Right. And just staying as part of the introduction conversation, in the case of a mortgage REIT, I understand it's 100% cannabis. In the case of a BDC, it's a bit of a blend. I don't know about the private side, and obviously, I'm not so sure how much you can disclose about the private side. But why is that? Why the BDC may be a blend? Why the mortgage REIT only cannabis and the private, again, if you want to disclose?
Yeah. Private funds and our BDCs are between 20% and 30% non-cannabis direct loans. We're private credit and idiosyncratic credit investors by background. We've been focused on the cannabis industry for the last seven years and have built an organization with industry-leading expertise in that space. But our background is more broad than that. And oftentimes, we find that cannabis presents an extremely unique risk-reward profile. But we also occasionally find opportunities that exceed what we're finding in our cannabis pipeline. And for those opportunities, we want to be able to give our investors exposure to that.
Right. And again, one more, and only if you can disclose as part of so people can understand the group. You talked about the $2 billion. I think that's the history over the years, right, in terms of how much loans you've made. We know the size of the book of the REIT. We know the size of the book of the BDC combined with the private side, be half of it or a third or roughly? And again, don't disclose if you don't want to, Peter.
Oh, no. It's about $2.5 billion in total assets under management across the firm.
All right. That's good. Thank you for clarifying that. Okay. So look, we're going to move the discussion now to what I call the finance sector in general. I'm going to ask a few questions, and then you tell us what you can share, and this is before we get into cannabis, right? So how would you characterize investor sentiment right now in the mortgage REIT sector and the BDC sectors, ex-cannabis speaking in general? How does the interest rate environment affect the REIT and BDC group in terms of volatility and also its direction or expectations for lower or higher rates? Given the volatile macro background, both economically and geopolitically, does that increase investor appetite for this sector or decrease it? If you can touch on those subjects first.
And again, a reminder to the audience, it's a blend of cannabis people and people that are more on the finance side and less focused on cannabis. But thank you.
Yeah. I think that the mortgage REIT and BDC sectors performed relatively negatively over the course of 2025. I think it's driven by two macro trends. One is declining interest rates. And the broader mortgage REIT environment and BDC environment is negatively impacted by declining interest rates because the portfolios are oriented towards floating-rate loans, whose interest, the interest that they earn, declines when benchmark rates such as prime or SOFR decline. And so the stock prices of mortgage REITs and the BDC sector at large declined under the expectation that the earnings of those vehicles would decline as benchmark rates declined.
I think the second macro trend impacting REIT and BDC sectors has been, I think, trepidation with private credit and fear that private credit markets have become saturated, that covenants, packages, and downside protection elements of debt investment have become weakened, and that the portfolios of some of the largest BDCs were not as strong as their management teams would portray them as, and a couple of large defaults and examples of fraud that came to light during 2024, such as First Brands, I think, created a small contagion among the retail investment community that perhaps the book values of some of the larger BDCs and REITs had become not as reliable as they once thought, but I think there were these two large elements that were driving negative performance in stock prices in mortgage REIT and BDC sectors over 2025.
It's an interesting contrast with what we do here at Chicago Atlantic, that we invest in an industry whose performance in many ways is not so tied to the broader macro environment. Our portfolios are much less exposed to downside risk of interest rate declines than the broader BDC and mortgage REIT index by virtue of our high interest rate floors in our floating-rate loan portfolio. So I think our performance was somewhat impacted by that, but I'd say somewhat unjustifiably so.
Right. And on that point, and obviously, you disclose this for the BDC and for the mortgage REIT, the % of your book that has floors at or above the current prime or SOFR rate, how would you compare that ratio with the ex-cannabis mortgage REITs and BDCs? It seems that you have a more protection than the average, it seems, right? But if you can touch on that, if you have some numbers there.
No, it's really significant. So for our mortgage REIT as an example, the way I like to describe it is that only 14% of our loan portfolio is exposed to rate declines of more than 100 basis points based on today's or any rate declines based on the prime rate back in when we announced our Q3 earnings. So that was 7%. So that number has only improved since then as rates have continued to decline. So as of Q3, only 14% of our portfolio in REFI was exposed to mortgage rate declines. And that's significant because a much larger proportion of our loan portfolio is floating rate. The difference is that when we negotiate our loans, we set a floor on that floating rate so that the lender gets the benefit if interest rates go up, but the lender does not suffer if interest rates go down.
And we're able to negotiate that because we operate in an industry in which there are very few lenders operating in the space. And it's just one example of how we're able to create unique risk-reward when structuring our loans and negotiating our loans and deploying capital.
Right, and on that point, I'm probably saying something that's obvious to people who follow the finance sector, but maybe less so for the ones in cannabis, that those lenders outside of cannabis, their borrowers, if the floors are very high, would start just refinancing elsewhere, right, but like you said, in the case of cannabis, that's a tougher proposition for the borrowers.
It's a tougher proposition because there are fewer lenders available, and also it's a tougher proposition because we also structure a certain amount of call protection in our loans so that we're guaranteed a certain amount of interest even if they refinance us early.
Okay. And again, not to repeat what you just said, so you're saying that in a way, your protection, the fees for early repayment and those type of things would be higher than average in other sectors.
Exactly.
Right. Before we move on to cannabis and lending in cannabis, just at the macro level and without getting political, I've been listening to a lot of the conference calls from other BDCs outside of cannabis, mortgage REITs outside of cannabis. And the conversation, it's a lot about some of what I would call the political issues, right? The potential caps on mortgage rates, caps on credit cards or on spreads, Fed volatility because of a discussion around Fed independence. And again, not to get political here, but does it have any relevance or does it influence sentiment in the sector overall and even in your sector also? Any comment you can make, Peter, here?
I think declining interest rates are generally credit positive for us because it leads to stronger investor sentiment, stronger eagerness to deploy capital, more risk-on and risk-seeking attitude among investor groups. And I think it leads to more interest in growing sectors like cannabis that have growth attributes that are not necessarily directly correlated to the U.S. economy. I think that cannabis has industry-specific tailwinds driving its growth and driving specific operators within the cannabis industry's growth that are disconnected from trade war, disconnected from Fed executive branch conflict. And so I think it's a particular fit for investors that are looking to add diversification and exposure to a part of the U.S. economy that they probably don't have through other aspects of their investments of mutual funds and ETFs and the ordinary S&P tickers.
Whether it's looking for alternative investment, private credit, private credit exposure, BDC exposure, mortgage REIT exposure, the few lenders to which you can deploy capital in this space to focus on this space are pretty clearly diversifying for most investors.
Right. Understood. Okay. So I want to move again the discussion now to the rationale for investors to invest in mortgage REITs in the cannabis sector or BDCs in the cannabis sector. There are two now, right? AFC Gamma, Advanced Flower Capital, and yourselves on the Chicago Atlantic Group side on the BDC front. And again, I think you answered the question already in part. I'm going to repeat it if you want to add anything, but I think you touched on it already. Speaking in general terms, what is the pitch to investors to invest in cannabis REITs and cannabis BDCs? Is it all about better risk-reward? But again, I don't want to make it, I know you answered part of that, but anything you want to add there on that question specifically?
Yeah. Look, I think risk-reward is fundamental to all of this. But it's both risk and reward. I think when you compare our loan books to the broader private credit industry, the comparison is very stark. We tend to lend to cannabis operators at much lower leverage than the broader private credit industry. We deploy loans at 1x- 2x EBITDA, whereas the broader private credit industry, particularly loans to sponsored private equity-backed companies, are lending at 4x- 6x EBITDA. We lend to companies based on companies' real EBITDA, not their adjusted EBITDA after negotiating with a private equity sponsor over the terms of what adjustments to EBITDA are allowed. We have real covenants in our loans.
And then on top of that, we built a diversified portfolio that generates dividend returns that are comparable with the broader private credit space or exceed the broader private credit space, but with a portfolio that has a greater proportion of first-lien debt and a portfolio that is much less levered than the broader private credit industry, even if we were to deploy the full credit facilities available to us in REFI and LIEN. And so I think it's a differentiated risk profile at the investment level, and it's a differentiated risk profile at the portfolio level, and it's a diversification opportunity that makes these vehicles really distinct from anything else in the BDC and mortgage REIT sector.
I mean, to give you an example, our BDC Chicago Atlantic BDC, Inc., I don't think there's not a single other publicly traded BDC that owns a position in our book that I'm aware of. Whereas one of the other challenges with particularly the larger BDCs in the market is that they're all kind of investing in the same profile of deals, and in many cases, they're co-investing alongside one another in the exact same deals, and so you may think that by buying Owl Rock and Ares, you're diversifying managers, but actually these managers in many cases are investing in the exact same portfolio companies alongside one another, and so we're uniquely positioned in that regard in that when you buy a share of LIEN, you're buying exposure to a portfolio of investments that you cannot get through any other publicly traded BDC.
Right. Right. Thank you. That's a great color there. Look, on the same topic, I realize it's a different sector, the sale leaseback operators, but remind the audience of the advantage of BDC and REIT lending versus sale leaseback operators, and again, it's not so much advantage, but the differences. Yeah.
I think the biggest differentiator is duration risk and all of the risks that go along with duration. Obviously, duration risk, most people, financial investors, immediately jump to interest rate risk. In our space, when I say duration risk, it's the fundamental risks associated with long-tenor loans that loans are two to four years in duration. Where in a sale leaseback, even a company such as IIPR, Innovative Industrial Properties, acquires a cultivation facility and leases it to an operator, that's a 10 to 30-year lease. And so IIPR needs to be confident that the cultivation facility that it's acquiring and leasing to an operator is an asset that's going to be useful as a cannabis cultivation facility for the next 10 to 30 years. And that's a challenging investment threshold for assets that are very expensive to build and are much less valuable if repurposed to another use.
And so I think that as a lender, we're able to much more nimbly reallocate our exposures across the sector and across the industry as the industry evolves and as different opportunities arise. That when a loan matures, we have the opportunity to decide, do we want to redeploy with this borrower? Do we want to redeploy those proceeds in this state or in this market? Or do we want to take it to different borrowers in different states and different markets because the risk profile is better or the reward profile is better or that state or market is growing differently? And so I think that the uncertainty associated with long time frames is the single most important piece, particularly when focused on cultivation assets.
Right. And just staying on the duration risk, and again, going back to that comparison with mortgage REITs outside of cannabis, again, when I listen to those conference calls, a lot of discussion about duration risk, would it be fair to say that the duration on average of the Chicago Atlantic mortgage REIT is a lot less than your average mortgage REIT out there or not necessarily? I mean, trying to compare that.
Definitely. Our portfolio is less than two years. Our portfolio duration is less than two years.
The average mortgage REIT out there outside of cannabis would be what?
I don't know the number off the top of my head, but it's much more than two years.
Yeah. Hence all the discussion about mortgage duration risk in those calls, and then just staying on that same conversation.
More than two years.
Go on.
Oh, sorry. Go on, Pablo. No, no, no.
No. And then just staying on that conversation about, I think you touched on it, but again, when I hear those calls, I hear a lot about agency risk or agency fees or companies being part of syndicates. It just seems that a lot of them, and I know you touched on this, but a lot of them, at the end of the day, a lot of what's on their books is not something that they really originated themselves, right? Of course, they've done their due diligence, but other people were on the ground, if you want, kicking the tires, as they say. In the case of your book, pretty much you have originated pretty much everything yourself. Am I exaggerating or is that true?
Absolutely. We lead and arrange nearly all of our transactions. And there's a couple of advantages to that. One is obviously that means that we drive our diligence. It means that we own the relationship and extremely value the relationship with the borrower. So that means that it gives us more optionality to continue to grow with borrowers as they grow. And it means that we're responsible for documentation. We're responsible for upholding the standards of downside protection that underlies these contracts. And it means that it gives us much more control and flexibility over how we allocate those opportunities over the long term. And I think fundamental to this is the platform that we built. We built the largest origination platform in the cannabis industry, the largest underwriting team within the cannabis industry, a dedicated real estate underwriting team, a dedicated analytics team.
This type of platform and investment and headcount relative to our assets under management is unheard of within the private credit space. It allows us to take all of these resources and focus them on expertise and value creation within this industry for the benefit of our funds and investors.
Right. Now, stay on the same type of a line of questions. Here, if you want to pitch your stock to those investors that mainly focus on plant-touching stocks in the cannabis space, what would you say to them in terms of comparing an investment in a plant-touching stock versus investing in what I call the finance cannabis ecosystem? And again, I know it's not one or the other, but what would you say in that sense?
It's not one or the other, but I think we focused on creating a downside protection, a downside of accessing the cannabis industry through a relatively downside-protected approach and venue, and that's through first-lien senior secured financing. And we found that because of the limited competitive set of lenders within the space, that as a first-lien senior secured lender, we can create unique downside protection and a really attractive yield for our investors. And that approach has allowed us to continue to earn attractive returns for our investors when cannabis stocks were booming and MSOS was trading in the 60s and 70s, and when MSOS was trading below $5. And in a period in which MSOS has declined by, at one point, close to 90%, we still generated attractive dividends for our investors across all of our vehicles with a very low rate of default and non-accrual across the portfolio.
And I think it's pretty unique, and it's pretty rare that you find an operator that delivers such profitable, consistent results at a time when equities in the space have declined so precipitously. And that's really what we've sought to achieve here is exposure to create low volatility exposure to what can be a volatile industry.
Right. Thank you. That's a great color there. Look, we're going to move on the discussion now to the impact that we are seeing from the cannabis regulatory news flow. I'll ask a couple of questions here. With rescheduling to three with all that news flow, especially what happened on December 18th, is there more demand for credit from the operators? I'm going to add one more question here. While operator cash flow should improve given to 280E removal, and this will increase the credit quality of your borrowers, this could also attract more credit suppliers, right? Is this true? Would there be more competition? Are you seeing that type of competition start to emerge because the creditworthiness could be higher now? Thoughts on that?
Yeah. We're absolutely seeing more demand in the market on the expectation that rescheduling will occur in 2026. And I think that's driven by equity optimism that a renewed belief that, and fundamentally, you see it in public equities that over the course of 2025, public equities rallied. That translates down to private operators because private operators see that for every dollar that they invest to generate a dollar of EBITDA, that EBITDA will be valued at a higher multiple. And so you're seeing operators and equity investors deploying further in growth, deploying more, investing more in M&A and inorganic expansion. And with each of those decisions, that opens up opportunities for us to lend alongside the equity. And so we're busier than ever and looking to support the best operators in the industry as they look to achieve their goals.
On the capital supply side, you certainly see more. You've seen some more equity capital enter the space as evidenced by stock prices increasing. We haven't yet to see new lenders enter the cannabis market, neither in the bank and institutional world or the broader private credit and alternative financing space. And it's driven by a couple of things. One, rescheduling hasn't happened yet, and then B, rescheduling doesn't solve the fundamental problems that prevent capital, especially debt capital sources, from entering in the industry, and those fundamental problems include that cannabis is still an illicit substance. Whether it's a Schedule I illicit substance or a Schedule III illicit substance, it's still an illicit substance. The same regulatory controls and restrictions will apply for banks as a Schedule III substance as they did as a Schedule I substance.
The limited partners, the investors that back the private credit industry, which are endowments, pension funds, sovereign wealth funds. Schedule III does not change fundamentally their view of the cannabis industry, so unfortunately, the same hurdles that prevent capital flowing into the credit side of the financial industry, those hurdles still exist in a rescheduling environment. I think what we look forward to, and we think what would be an even more, perhaps an even more significant development than simply rescheduling, would be the opportunity for cannabis companies to list on U.S. exchanges. I think that's the next change that would be most transformational for our industry's access to capital, more than SAFE Banking, more than an executive memo or an executive order, but access to equity capital through the New York Stock Exchange and the Nasdaq would be transformational.
On that point, and I want to stay on topic, but on that point of uplisting to the U.S. exchanges, do you think that's possible if cannabis remains federally illegal even though we move it to Schedule III?
It's difficult to say. I think it's possible, though. I think it's possible. I think with executive guidance, executive guidance from the SEC and the DOJ, I think it's possible.
Right. Agreed. Okay. We'll move on the discussion now in terms of your views on how rescheduling plays out and its impact, right? I'm going to read three questions here, if you can touch on them. Highlight the quantitative and qualitative benefits of rescheduling. And again, a reminder, Peter, some of the audience is non-cannabis, some is cannabis, right? So that's the first question. Second one, assuming the DOJ publishes a final rule by January 30th, when does S3 become effective for 280E purposes? January 1st, 2026, or when? Or does it go back in time? And then the third question, any predictions on what happens to the unpaid portion of past 280E tax liabilities called long-term uncertain tax benefits on the balance sheets? Is there a pardon, a haircut, restructuring plus payment plans? What would you say to that? Thanks.
Yeah. For those not familiar, in Trump's executive order, he ordered the Justice Department to pursue the rescheduling of cannabis from a Schedule I illicit substance under the Controlled Substances Act to a Schedule III illicit substance under the Controlled Substances Act, which is a less restrictive qualification. For cannabis operators, there's a significant economic impact of this in that operators who are manufacturing and distributing a Schedule I substance are subject to a much more punitive tax regime than operators that are manufacturing and distributing a Schedule III substance. The impact in many cases can increase the post-tax earnings of a cannabis operator by 25%, 50%, or 75%, depending on the starting point. Specifically, it allows cannabis companies that previously could not deduct overhead expenses from their taxable income now can deduct overhead expenses just like any other corporation operating in the U.S.
The immediate cash flow implications are very significant. The improvement in cash flow then obviously has an implication for how these equities are valued using the availability of capital for public and private operators. What that means for liabilities that companies have accrued over the past five, six, seven years is a different question. Many of the large public and private companies have opted not to pay those taxes that have accrued on their balance sheet over the past years in the hopes that someday they might be forgiven or never collected by the IRS. I'm not a tax attorney, but I underwrite our investments assuming that those taxes will eventually have to be paid, that they are a real liability held on the balance sheet of operators.
And there may be a different flavor of liability, but I view them as still a liability that will have to be paid, and we make our investments on that basis. That being said, rescheduling is still very important for the industry and a great step forward.
On that, on the point of the timing, if it's, let's say that we get the final rule, that rescheduling gets done, right, per the procedure, per statute in 2026, that means that 280E would not apply starting January 1st, 2026, right? I mean, maybe I'm stating something obvious, but do you agree with that? Or could someone make the argument that we should go back to 2023 when the HHS published a 252-page report?
As an investor, I underwrite assuming that the tax benefit will only become effective in 2026.
Right.
I suspect other people have different opinions, but as an investor, I deploy capital with that assumption.
Right. Thank you. Look, we're going to talk about broader capital markets impact from all this news flow, and I know we've touched on it partly already. Based on the feedback you've been getting from the various operators, right, the first question would be, other than share price swings, how would you characterize investor response to the rescheduling news flow? More inbounds from potential investors? And I'm talking about the operators, right? So I'm asking you here to speak on behalf of the operators. Are they getting more inbounds from potential investors? Is there more private capital available to these companies? Is there more debt capital? That's one question. Second, if SAFER were soon to follow rescheduling, how would that impact your business?
And then bigger picture, does the thesis of cannabis finance companies benefiting from this imbalance on demand supply of capital still play out if we have SAFER Banking and rescheduling? Thanks. I know there's a lot there. Thank you.
No, but good topics to cover. On equity capital markets, on the public equity capital markets, I think we saw the impact well before Trump made his announcement, that the impact of rescheduling occurred in the six months prior to that. When Trump actually made his announcement, the market declined. But I think that's because there was so much enthusiasm and expectation that it was going to occur in the months leading up to this announcement. In private equity markets, we have seen more enthusiasm and interest and ability of private operators to raise private equity capital to start their businesses, from opening dispensaries to raising additional capital from existing investors to grow their businesses. But I would say that it is focused more on established companies with a proven track record looking to raise capital for their next growth initiative rather than start-up greenfield.
I'm sorry to interrupt. There you go. Equity capital for the private companies. Yeah, go on. Yeah. Sorry. Thank you.
Yeah. Speaking of equity capital, in debt capital markets, we've not seen a significant new inflow of lenders operating in the space, nor have we seen a change in temperament of the few existing debt capital providers in the space.
Right. And then on the question of SAFER, I know we touched on it partly before, but if you want to talk about the potential impact on your business, if we had SAFER Banking this year, and again, if we have rescheduling and SAFER, does the thesis of benefiting from this capital imbalance, demand supply imbalance in the sector still play out for you?
Yeah. The SAFER Banking Act, the text of the law would seem to be very powerful. It explicitly permits banks and other financial institutions to provide commercial services to the state-regulated banking industry without fear of prosecution. It explicitly permits banks to make loans to the cannabis industry. The challenge with the SAFER Banking Act is that banks are not the leading provider of private credit to mid-market businesses in the U.S. today. They are not the key credit provider to support growth of this industry. And I don't say that because there's something unique about the cannabis industry. It's because banks aren't the leading provider of credit to mid-market businesses anywhere in the U.S. economy anymore.
What we really need and what's going to take a lot longer for there to be more availability of credit capital is the entire ecosystem of credit and especially private credit to open up to the cannabis industry. You need banks that lend to credit providers like us to be more willing to lend against portfolios of loans. You need credit rating agencies like S&P and Moody's and Fitch to rate cannabis bonds. They will not do so today. You need insurance companies to be permitted by their regulators to invest in cannabis operators. You need custodians across the country to be willing to hold cannabis bonds. Many don't today. You need the Big Four accounting agencies, accounting companies to be permitted and to be eager to audit cannabis companies. This whole ecosystem is what creates the U.S. debt capital markets.
Unfortunately, the SAFER Banking Act is not sufficient to open that ecosystem up to the cannabis industry. I think in addition, we have a problem that cannabis seems so low on the priority list of reforms in Congress that SAFER Banking seems very, very far away. But to be clear, at Chicago Atlantic, we would welcome it, and we think we would be significant beneficiaries of something like SAFER Banking. We spend a lot of time in the credit markets looking to raise credit facilities. We've raised unsecured notes in our public vehicles. We've built relationships with all of the banks that currently operate that we can find that operate within the cannabis industry and with an aim to be their preferred deployment source into the industry. And we've had a lot of success raising credit facilities and deploying those credit facilities over the years.
And so we think that we're going to be the first beneficiary of capital markets opening for the cannabis industry.
That's great. Thank you. Look, Peter, we're going to move the discussion now to specific questions on the BDC and then on the mortgage REIT. I have a few questions on the BDC. I'll start with just three. Maybe briefly recap the third-quarter performance and remind us of any forward comments that were made for the BDC. Also, you had much larger than expected early repayments in the third quarter. Remind us what was the context for that. And then on the BDC, you had said earlier this year that you plan to fully redeploy your credit line in 2025, but this seems unlikely now. So if you can comment on that first on the BDC.
Sure. We had a strong earnings quarter in the BDC and a strong deployment quarter in Q3. We deployed north of $60 million within the quarter, which is a very large deployment quarter for a vehicle of our size. Excuse me. The challenge is that we also had a significant number of repayments. And so our net deployments for the quarter were not as strong as we would like. We earned a significant amount of prepayment penalties associated with those fees, prepayment fees related to those prepayments that our earnings benefited from. But it means that we have to continue to grow up. And I think this is the challenge of strong underwriting, that when you underwrite well, your portfolio companies perform well, and oftentimes they're able to pay you off. And that's okay.
It's both a marker of our success and a marker of our continual challenge to find more opportunities, continue to build relationships, and continue to deploy within the industry. I won't speak to full year 2025 guidance until later this spring. But ultimately, we build an originations pipeline that takes a very long time to develop. The north of $60 million that we originated and deployed in Q3, not originated in Q3. That was originated over the course of relationships that we built in some cases over many years. And so while we continually invest in building and growing that pipeline, unfortunately, the repayment schedule is harder to predict. And so it so happens that we had more repayments than we expected, but luckily, we've continued to invest in our originations and our deployment, and I expect 2026 to be a very fulsome year of investing.
That's great. Thank you. And staying with the BDC, from our stance, and again, my read could be wrong, of course, but from our stance, you have a riskier portfolio than the mortgage REIT in the BDC, given that you operate with several smaller private cannabis companies in the loan book. Is this read wrong? And again, I know that in the case of the REIT, we don't know necessarily the name of every borrower, but from outside, it just seems that a lot of smaller companies, private companies that would represent maybe higher risk than what we see on the mortgage REIT. Is this the wrong interpretation, wrong read?
Yes, I think it's not necessarily supported by the data that the profile of borrower in the BDC and the mortgage REIT is actually quite similar, and the breakdown of private versus public is, we view, not material to the risk-reward of the two vehicles.
Right. Thank you. Look, again, this is talking about one of your competitors. And again, we cannot comment much about competitors, but now there's a second go on, sorry, Peter. Go on. Yeah? Did you want to add something?
I think the small company-large company dynamic is not necessarily the right way to look at it. We have relationships and have deployed capital with some of the strongest public and large cap operators in the space. But I actually believe that our best risk-reward in our portfolio is not with the largest operators, not with publicly traded operators, but with one and two levels smaller than that. That we're able to create lower risk, I think, opportunities by lending to private companies that are often diversified across multiple states, that are always diversified by retail and wholesale and a diversity of income sources. Among those smaller operators, the relationship matters more. The underwriting matters more. There's even fewer debt capital providers options available for them.
And so that means we take competitive advantage in our limited competitive set of lenders, most importantly, structured uniquely positioned downside risk, not necessarily as a first priority to stronger interest rates. And I think oftentimes you'll find that many of our competitors that have entered the space and subsequently left the space have found more pitfalls within the larger public operators than the smaller operators for that reason that the REIT tends to be not as well underwritten and not as well controlled contractually. So our bread and butter is and will always be supporting medium and small operators. We will also continue to support large operators, but I think we have the largest impact in our investor benefit the most when we can support growing small and medium-sized companies.
Right. Look, the next question is one about a competitor and comment only if you want. Until recently, Chicago Atlantic BDC was the only BDC in the cannabis space. Now AFC Gamma is also BDC in the space. That means a new source of competition. Any comments or thoughts you want to leave there? It just seems that in the same pie, maybe that means a bit of a share loss for the potential opportunities for LIEN. But tell me.
I think AFC Gamma is a very smart group of individuals that understand investing well, and they were a competitor as a mortgage REIT or as a BDC. The competitive dynamic is very similar, so I don't anticipate a specific change related to this. In some ways, I think while converting from a mortgage REIT to a BDC, I think it increases their opportunity to deploy because they're not limited to only real estate-backed deals. It also in some ways limits their ability to deploy because they have much stronger diversification requirements as a BDC than as a mortgage REIT, and so it forces them to seek out risk in a larger number of smaller loan transactions, which can be difficult to deploy into, and so I don't think it changes our competitive dynamics very much, and competition isn't always a bad thing.
All right. Thank you. And look, the last two questions on the BDC, if you want to talk about the spreads, I mean, your cost of funds on the BDC, your yield to maturity. And then by the same token, remind us how high would you take the debt leverage on the BDC?
So today in BDC, we have a $100 million facility, revolver and credit facility available. We will seek to consistently deploy that facility before we seek to find additional debt capital sources. But I suspect that in any circumstances in the immediate future, we'll continue to be much less levered than the broader BDC market.
Thank you. Look, just moving the discussion now to the mortgage REIT. Why does it make sense for the BDC to lend outside cannabis, but not for the mortgage REIT?
I think real estate lending and middle-market business lending are just very different markets. And in middle-market lending, there's enough idiosyncratic areas of the market and idiosyncratic niches and opportunities that the BDC can originate opportunities whose risk-reward meets and exceeds what we find in the cannabis industry opportunistically. And I think that's a much higher, that's a much more difficult threshold to exceed in the broader real estate industry where competitive dynamics and the lending market and landscape are just very different.
Right. Thank you. Again, similar question on the mortgage REIT, if you can recap third-quarter performance and remind us of any forward comments you made for REFI?
Absolutely. Our forward comments were limited. In the third quarter, we continued to deliver stable earnings and dividends. We continued to deploy through the year, and we continued to communicate that we are targeting portfolio growth through the year. The pipeline for both real estate and non-real estate-backed loans is extremely strong. We announced with one of our borrower partners, Verano, just this week that we upsized the real estate-backed revolver with the company as one example. Similar to the BDC, we expect on the tails of rescheduling that there's additional equity capital deployed in this industry, particularly for M&A, that REFI and LIEN are going to be beneficiaries of that in deployment.
Right. Look, I want to stay on topic, but given you went back to that point on M&A, because a lot of M&A so far has been funded with equity, right, by the operators. But you're saying they're willing to take cash loans from someone like Chicago Atlantic so they can fund some of their M&A with cash. Is that what you're saying?
I think there has been equity-focused M&A. It's been driven by, I think the most publicly announced M&A has been driven by reorganizations and divestitures among a handful of operators. I think we all know there's a handful of larger companies that are pursuing operational and balance sheet restructurings. And we've supported healthy operators seeking to buy many of those assets across our platform. We were helpful in Vireo's acquisition of Solhaus. We supported some of the large public operators that are going through reorganizations and sales processes that I won't name here. We've supported term sheets for many people to acquire those assets. Oftentimes, we're supporting many buyers at the same time for the same assets. And so regardless of the currency, if the asset is healthy, there is an amount of leverage that we'll be comfortable providing.
Right. Thank you. And then can we just touch on the non-accruals of the mortgage REIT? If you can just provide an update there? If my numbers are right, it's about $25 million or almost a $400 million book. But just some context there, if you can provide?
I think our largest and most persistent non-accrual, we expect to be resolved and hopefully put back on accrual status within the near future. It's a foreclosure process that we completed in 2025. The business was recapitalized. A new loan was replaced within REFI, and the operations of the business have recovered significantly since its recapitalization, and we hope to be able to announce its placement back on accrual status in the near future.
Right. Thank you. Look, last couple of questions on REFI. Does REFI see opportunities to take equity stakes in some of your borrowers, like either direct equity stakes or swapping debt for equity?
Both REFI and LIEN, due to their Nasdaq listing, are prohibited from holding equity in cannabis operators. There's other mechanisms that they can be compensated. They can take large fees, large exit fees, one-time fees. But unfortunately, at this time, Nasdaq still prohibits these vehicles from holding equity in cannabis companies, unfortunately.
Similar question on REFI about the debt leverage. How high can you take the debt leverage on REFI? Or remind us of the credit facilities they have access to.
Our existing credit facilities limit total leverage in the BDC, in mortgage REIT, in REFI to approximately $200 million, and we are still well below that leverage level today.
Right. And the very last question.
I should say that even if we were to fully deploy that leverage capacity, the vehicle would still be significantly underleveraged relative to the broader mortgage REIT index.
Yeah. Look, and the last question on both companies, Peter, just remind us of the metrics in terms of the floors, right? Percentage of the book that you have floors at or below, at or above current rates on the BDC and on REFI, if you can give those numbers again.
Yep, absolutely. So I like to frame it a little bit differently. That in REFI, only 14% of our loan portfolio is exposed to interest rate declines as of Q3 from the Q3 benchmark, and the metric is very similar for the BDC.
Right. Thank you. Look, I know we're going to be running out of time here. We very much appreciate all the color you've provided. I want to ask you a couple of more questions. Regarding Vireo Growth, we realize that Vireo Growth, an up-and-coming MSO, building a very attractive portfolio of assets, I must say. But we realize this is a totally separate entity from Chicago Atlantic, right? But given that Vireo Growth CEO is also part of Chicago Atlantic Group, does this help or hinder relationships with potential borrowers? Or it has no effect? It's just a neutral factor in an event?
I think Vireo Growth is the best example that I can give of how we at Chicago Atlantic play a very active role in supporting our borrowers' growth initiatives. Vireo was a long-time borrower of Chicago Atlantic's private funds and REFI. And over the course of 2024, Chicago Atlantic partnered with the board and the management team of Vireo to support their acquisition strategy. And they had buyers. In that process, Chicago Atlantic supported Vireo in an acquisition in Missouri, Utah, and Nevada. It really changed the footprint of the company and transformed the business so much that my partner, John Mazarakis, decided to take a step back from his operations of our lending business to focus on guiding that new team and that new orientation of Vireo.
And while that's particularly transformational and public, it's the same thing that we're doing with all of our operators across the country on a daily basis, just usually on a much smaller scale. It's introducing an Illinois operator to an acquisition operator of a chain of other dispensaries. It's introducing a Maryland operator to a social equity operator that's looking for capital to build their dispensary or is looking to find retail space. These are the type of partnerships that are fundamental to what we do. And so I think our unique relationship with Vireo is one that I tout as positive, one that we ascribe to our relationship across the industry. And it should be a selling point because it's something that I want to replicate. I want to replicate with more operators as we grow and bring this industry together.
I think that in this statement, we said this whole time, the whole call basically, the fundamental theme underlying our conversation has been capital constraints, a lack of liquidity and capital available to cannabis operators and cannabis lenders in the industry. But I think what's even more fundamental is that the cannabis industry lacks the trust. That being able to come together, two operators, two competitors to come together to achieve something whereby a combination is better than individuals operating individually, to create that trust, to create that bond, that trust is the most thing that's most lacking within our space. And Chicago Atlantic, our track record of execution, our ability to do what we say we do and use that as leverage to bring people together and allow parties to achieve their goal of growth, that's the greatest value add.
That's great. Thank you. Peter, before we go to closing remarks, I'll just read a couple of few questions I received here. Let me just filter some of them. Someone is asking, and I'll make sure we finish at 3:00 P.M. sharp. Looking long term, right, someday cannabis is federally legal. People say, you know, what does Google, Shopify represent in terms of competition to the Weedmaps of the world, right? I mean, don't answer that. But in terms of your sector, right, when those diversified BDCs, diversified mortgage REITs can enter the space, it just seems that it would take a while for them to build the relationships that you had in the sector, right? But just a brief answer on that, if you want to try to characterize that. But brief, brief.
Yeah, absolutely. I think we're going to be the first beneficiaries of openness in the financial sector to the cannabis industry. We're going to have a lot more access to capital, both debt and equity capital. Our borrowers are going to have a lot more access to capital. And fundamentally, cannabis is still an extremely fragmented market. I think within the industry, people like to talk about the positives and negatives of consolidation. But this is still an extremely consolidated industry driven in large part by the state-based regulatory frameworks. And it's going to take a very long time for, even if the world, the financial world, were to change tomorrow, it would take a very long time fundamentally for organizations to get up to speed with regulatory frameworks and supply and demand dynamics and market competitive aspects of each of the 40 states where cannabis is legal.
That's the diligence piece that we do in each of these 40 states before we've made a single investment. So we welcome it. We're excited by every step of openness that occurs within the financial services sector.
Yeah. Thank you. Look, just a short answer. We touched on this before, but someone asking, how do uncertain tax positions of cannabis operators factor into your risk-reward framework?
Yeah, thank you. We got a question from Ian Dominguez, who I respect a lot. I think uncertain tax positions we view as leverage. That until there's certainty brought to how the IRS will treat those tax statements, we treat it as a liability that we expect to be paid. And we generally limit the ability of our borrowers to incur such uncertain tax liabilities as part of the covenants in our loan agreements.
Right. One more question. Given all the structural advantages you've talked about, why are the public vehicles trading at such low multiples of NAV? Yeah, I mean, or at par.
No, absolutely. I think that it's driven by that we're being affected by the same negative tailwinds driving the same trend of mortgage REIT and BDC index more broadly, unfortunately. I think it's unjustified for a number of reasons because our leverage is a lot lower than those indexes. Our performance in terms of book performance is a lot different from those operators. And we're lending into very different markets and competitive dynamics than the broader BDC and LIEN markets. So while I think it's unjustified, I think when you look at our comparable metrics, when you look at our comparable metrics, we are clearly distinct outliers within the industry. But unfortunately, I think we've been subjected to the same industry sentiment.
Right, and the very last question, someone asking if you can comment on the dividend coverage, both at REFI and LIEN.
We've put a high priority on maintaining our regular dividend and have not made any intentions clear to the contrary.
Right. Great. Thank you very much, Peter, if you want to make any closing remarks. But great caller. We very much appreciate your time. Thank you to the audience. Peter, go ahead.
Yeah, thank you. I appreciate the opportunity to talk about our vehicles, particularly in this long period of time between Q3 earnings and Q4 earnings. In the meantime, we at Chicago Atlantic continue to deploy, continue to execute on our pipeline, and we'll continue to build relationships in the industry and are always eager to meet new operators, people entering the space, and either investors or operators interested in the space. Appreciate the time, Pablo.
That's great. Thank you very much, Peter. I hope you feel better. Thanks, everyone, for joining. Everyone, have a good day. Thanks.